Mixed outlook from additional tax claim for MMC Corp
KUALA LUMPUR: Analysts are mixed on MMC Corporation Bhd (MMC Corp) after it was slapped with additional income tax claim of RM45.9 million from the Inland Revenue Board (IRB).
MIDF Amanah Investment Bank Bhd (MIDF Research) took the optimistic approach, stating in a note yesterday that this would not have a material impact on MMC Corp’s day to day operations.
The research arm believed this is due to the high likelihood that the payment to IRB would likely be on an instalment basis.
The group’s current financial health is robust with an average generated net operating cash flow of RM168 million for the past three quarters in financial year 2017 (FY17).
“As of September 30, 2017, MMC Corp has accumulated a cash pile of RM844 million and debt worth RM9 billion, which translates to a net debt-to-equity ratio of 0.79 fold,” said the research arm.
Regardless of the outcome of the appeal, MIDF Research said the impact would not likely be reflected in the near term as appeal proceedings may take up to as long as 12 months to be completed.
To recap, the group announced last Wednesday that it had received notices of assessment from the IRB that on the grounds that interest expenses relating to certain investments made during 2011 to 2013 were not eligible for tax deduction.
MCC Corp then announced that it would be appealing against the additional tax claim as they have determined that there as reasonable grounds to challenge it.
Researchers with Kenanga Investment Bank Bhd (Kenanga Research) meanwhile believed the announcement would negatively impact the company.
“With full payment made, the aforementioned sum of RM45.9 million represents 14 per cent of our FY17E core earnings forecast,” it estimated.
“However, given that it will most probably be a one-off expense, we reckon that it would not significantly affect our earnings forecasts at the core-level.
“Likewise, we believe the penalties will not bear any significant impact towards its balance sheet as well, with its net-gearing level of 0.8 to 0.7 times most likely remaining intact.”
With no changes made to its earnings forecasts, Kenanga Research kept its target price of RM2.85 for MMC Corp unchanged.
“Our outperform call is premised on MMC Corp being a compelling valuation play, with a spin-off listing of its ports operations to potentially act as a rerating catalyst,” it highlighted.
MIDF Research also maintained their ‘buy’ call on MMC Corp’s stock with an unchanged target price of RM2.67 per share.
Further justifying their stance, the research arm highlighted that their ‘Buy’ call is premised on expected higher contribution from Penang Port upon completion of its 51 per cent remaining stake, the recover in Johor Port and PTP due to higher demand of conventional cargo at the Johor Hinterland and the steady performance of the energy segment.